In The Dry Math of Scarcity, Kevin D. Williamson comments on CA’s man-made drought and makes a few broader points:
I am glad California is having a drought. Not because I hate California (I love California) or Californians (I hate them only a little, for what they’ve done to California) or Central Valley farmers (some of my best friends . . .) or even Governor Jerry Brown, droll disco-era anachronism that he is, but because the episode presents an excellent illustration of the one fundamental social reality that cannot be legislated away or buried under an avalanche of government-accounting shenanigans and loan guarantees or brought to heel by politicians no matter how hard the ladies and gentlemen in Sacramento and Washington stamp their little feet: scarcity.
California has X amount of water at its disposal, and it has politicians in charge of overseeing how it gets divvied up. Which politicians? The same ones responsible for the current sorry state of California’s water infrastructure, of course.
Should be a hoot…
Governor Brown’s response is a textbook example of the central planner’s fatal conceit. He issued an executive order imposing 25 percent cuts on the state’s 400 local water agencies… 25 percent figure looks bold and authoritative, but when was the last time you saw the production, consumption, or price of a scarce commodity in the real world move by such neat increments? When something disturbs the equilibrium of the world’s oil markets — which happens every single day — then the markets make minuscule, complex adjustments, and continue to make them around the clock — the markets never sleep — with producers and consumers both modifying their behaviors to accommodate the new economic realities as they emerge. Amazingly (but not amazingly), this happens with no Governor Brown in charge of the process. You’ve never seen the price of pork bellies or soybeans simply jump 25 percent and stay there indefinitely, or rice or wheat consumption fall by neat round numbers. But Governor Brown imagines that he can rationally manage by fiat the consumption of the most important commodity in the world’s seventh-largest economy…
Among tragedies of the commons, California’s water situation is Hamlet, a monumental work fascinating for all of the possibilities it raises and not given to easy resolution. But even given the underlying complications, from the hydrological to the legal (California’s system of water rights is remarkably complex), the fundamental problem is that nobody knows what a gallon of water in California costs. Water allocations are made mainly through politics rather than through markets, with the state’s legal regime explicitly privileging some water uses over others.
There are two possible ways to allocate water in California: The people in Sacramento, Governor Brown prominent among them, can pick and choose who gets what, with all of the political shenanigans, cronyism, inefficiency, and corruption that brings. Or Californians can get their water the same way they get most everything else they need and value: by buying it on the open market. This is an excellent opportunity to apply the cap-and-trade model that many progressives favor when it comes to carbon dioxide emissions, with an important difference: This deals with real, physical scarcity, not artificial scarcity created by regulation…
As the economist Alex Tabarrok puts it: “California has plenty of water — just not enough to satisfy every possible use of water that people can imagine when the price is close to zero.” …
Everyone has his own favorite drought bugaboo: suburban lawns, almond farms, the delta smelt, golf courses, illegal marijuana cultivation, etc. Given enough time, somebody will figure out a way to blame this all on the Koch brothers, illegal immigrants, or the Federal Reserve. But the fact is that nobody knows — nobody can know — what the best use of any given gallon of water in California is. Californians can put their money where their parched mouths are, or they can let Governor Brown play Ceres-on-the-Bay, deciding which crops grow and which do not.
Whether the commodity is water or education or health care, if you care about something, put a price tag on it. You can’t afford for it to be cheap, and you sure as hell can’t afford for it to be free.
UPDATE (4/8/15, 11:58AM): the author comments on the comments generated by his piece:
As anticipated, much of the response to my piece on California’s drought goes roughly: “You can’t use market prices for water! Water is a fundamental human necessity! You can’t treat it like just another commodity.”
Thought experiment: You have ten people in the desert and 1,000 gallons of water. There are many ways you could divide that: You could let people fight over it, you could let them trade for it, etc.
But you know that after a while, that 1,000 gallons is not going to be enough for ten people. So your ten people form a legislature, and that legislature passes a law declaring water a fundamental human right, and mandating a minimum allowance of 500 gallons of water for each of the ten people in your community.
So, 500 times 10. How much water do you have? Answer: You still have 1,000 gallons, doofus.
Scarcity is real, and declaring a scarce commodity a fundamental human right is meaningless insofar as it does nothing to change the supply of that scarce commodity.
Of course California is going to ration water. It rations iPhones and cabernet already, and nobody seems much inconvenienced by that, because there are intelligent ways to ration goods (markets) and dumb ways to ration goods (Governor Brown et al.). But politicians cannot simply command more water into existence. There are fiat currencies, but there aren’t any fiat commodities.